Net income at the world's largest oil company rose 17% to $10.9 billion, or $2.03 per share, from $9.3 billion, or $1.62 per share, a year earlier. Revenue rose 34% to $116.9 billion. Analysts had expected profit of $2.13 on revenue of $124.4 billion, according to Thomson Financial. Shares of the company fell.
Just because oil prices remain above $100 per barrel doesn't necessarily mean everything is going Exxon's way. For one thing, high oil prices resulted in "significantly lower" refining margins, which pushed down downstream earnings by $746 million to $1.16 billion. Lower margins also pushed down profit in Exxon's chemical business by $208 million to $1.03 billion. Moreover, spending on capital and exploration projects soared 30% to $5.5 billion "as we continued to actively invest in projects to bring additional crude oil, natural gas and finished products to market."
The problem is that's proving to be difficult. For one thing, production at the company's oil wells dropped as did natural gas production in the Middle East, The U.S., Canada, South America and Asia. This is happening as surging demand from the developing world is keeping oil prices at record levels. Exxon is "having trouble raising production, and that's not a good sign,'' Leeb Capital Management's Stephen Leeb told Bloomberg News.
In an era of elevated energy prices, one argument noted in this space before is that oil and oil/natural gas service companies are likely to remain promising plays for the foreseeable future, barring the discovery of a cheap, widely-available, alternative energy. With this in mind, Core Laboratories is worth a review.
Core Labs (NYSE: CLB) analyzes petroleum reservoir rock and fluids, helping oil companies determine how much oil or gas exists in their reservoirs and how quickly it can be extracted.
Analysts see +20% revenue growth for CLB in 2008 on strong oil/gas well analysis revenue. Analysts also like CLB's ramping hydraulic fracturing / field flooding and reservoir management services. The Reuters F2007/F2008 EPS consensus estimates for CLB are $4.86/$6.07
Further, with global oil/gas exploration activity expected to increase 20-35% in 2008 after +20% increases in 2007 and 2006, analysts believe Core will be able to continue to increase its business at healthy rates. (Oil exploration budgets are likely to decline only if oil prices remain below $50 per barrel for a sustained period.)
While many older oil fields are producing less than they used to, new discoveries of crude may make up for that. The Wall Street Journal reports, "Projects under way in Brazil, Saudi Arabia, West Africa, the Caspian Sea and the Gulf of Mexico will more than make up for natural declines from fields now in production."
If the information is accurate and oil demand falls due to an economic slowdown, prices for crude could drop over the next several years.
What is not clear is whether demand for oil in markets like China and India will continue to spike up. If the Chinese government is willing to underwrite the cost of gas and diesel for its industrial and consumer sectors, the use of oil in that country could continue to rise at an alarming rate.
Distorted demand, caused by the Chinese government, could be the wild card in oil pricing.
Douglas A. McIntyre is an editor at 247wallst.com.
India announced Tuesday that it wants oil sector giants ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX), among others, to bid and explore for oil and gas in the country, on concerns that oil may hit $150 per barrel, Bloomberg News reported.
India, Asia's third-largest oil consumer, does not have the technology to search for and extract oil/gas from deep waters and in remote regions, and the nation is concerned that rising energy demand and rising prices will complicate the access to energy it needs to sustain its growing economy.
Predicts $150 oil
"In the next two to three years we expect prices to reach $150 a barrel," India's Oil Secretary M.S. Srinivasan told Bloomberg News on Tuesday. "Given this scenario, we are putting in more efforts in our exploration and production.''
Oil rose $1.75 to $96.75 in mid-day trading Tuesday. Oil rose an alarming 57% in 2007 and reached $100.09 on January 3, 2008. Oil hit an all-time high, in inflation-adjusted terms, of $102.80 in April 1980.
Concerning top picks for 2008, those assertive investors who can tolerate moderate/high risk should consider Transocean (NYSE: RIG). Transocean is favored here because it fits the investment theme of well-capitalized, experienced companies with long-term global trends in the company's favor. Transocean offers deepwater drilling services in the world's major offshore oil-producing regions, including Africa, Asia, Brazil, Canada, India, Middle East, Gulf of Mexico, and the North Sea -- and demand for drilling services is unlikely to decline in the immediate years ahead. Sell / Stop Loss if you were to purchase shares in this company: $84.
For those in need of a safer, large-cap play, consider Boeing (NYSE: BA), which boasts a solid commercial airline order book. Boeing is expected to win its global aviation battle with European rival Airbus, and in the process, transform flight as the 21st century progresses. Boeing's ace in the ongoing battle? The 787 Dreamliner, a super-efficient aircraft that will give airlines the profit margins they need and passengers the creature comforts/amenities they require in the digital age. Sell / Stop Loss if you were to purchase shares in this company: $58.
DISCLOSURE: Joseph Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.
The market in late 2007 and early 2008 -- how shall one put it? Well, diplomatically, there are a few uncertainties to keep investors awake at night: subprime mortgage defaults, the extent of the credit crunch, the price of oil, inflation, geopolitical concerns, to name just a few.
In this climate it's best to consider a defensive play or two, and while the oil and gas sector is not defensive, strictly speaking, XTO Energy comes close to fitting the bill. That's because XTO Energy (NYSE: XTO) buys primarily demonstrated oil and gas properties. XTO owns interests in more than 18,800 wells and operates gas gathering systems in Arkansas, Kansas, Oklahoma, and Texas.
Analysts expect oil and gas production growth of 17%-20% in 2007, and 14%-17% in 2008. Analysts also like XTO's 6.9 trillion cubic feet of proved natural gas reserves. Look for natural gas to play a larger role in the United States' energy use, amid sustained high oil prices and increasing environmental awareness. The Reuters F2007/F2008 EPS consensus estimates for XTO are $4.40/$4.33.
"The big, integrated oil companies are known for their relative safety and stability, and most have been paying dividends for many years " says energy expert Elliott Gue.
In his The Energy Strategist he explains, "These have been among the most reliable stocks investors can own in the long run." Here, he looks at Chevron (NYSE: CVX), which he calls his favorite among the US independent oil companies.
"Chevron remains relatively cheap in three valuation measures: price-to-barrel of oil equivalents; price-to-earnings and price-to-cash-flow. And while its 2.7% yield doesn't exactly make Chevron an income stock, it's consistently boosted that payout over time by more than 10% annualized over the past five years.
"Chevron is also one of the only Super Oils that will show meaningful growth in production over the coming few years. Even more important, it's scheduled to start up four major projects over just the next two years that will generate significant production growth upside near term. Here's a quick rundown:
"Tahiti is a deepwater field in the Gulf of Mexico where Chevron holds a 58% stake. The field is expected to have a peak production rate of 125,000 barrels of oil per day and 70 million cubic feet of natural gas.
Exxon Mobil stated that this agreement provides the company with exploration rights to "one of the most prospective unlicensed areas" located in the Libyan offshore area. The offshore exploration will take place approximately 110 miles off the Libyan coast, and the area is roughly 2.5 million acres. The water depth of the location ranges between 5,400 feet to more than 8,700 feet below sea level.
The Wall Street Journal (subscription required) reported that under the terms of the deal, Exxon Mobil will drill at least one well in the area, as well as pay a bonus to the Libyan government. Terms of the bonus were not disclosed.
Last year Libya ranked 8th in production among OPEC nations, and was removed from the U.S. list of countries that sponsored terrorism less than two years ago.
Michael Fowlkes has worked as a stock trader for seven years and spent the last two years working as an analyst for the online investment advisory service Investor's Observer. DISCLOSURE: Mr. Fowlkes owns and/or controls diversified portfolios of long and short stock and option positions that include holdings in XOM.
Russia tempered the enthusiasm of oil supply bulls when it announced that it expected oil production to grow only modestly over the next several years.
Russia, the world's no. 2 crude exporter after Saudi Arabia, said production would increase to only about 10.4 million barrels per day, up only 6% from the current 9.8 million barrels per day, The Wall Street Journal reported [Subscription required].
Viktor Khristenko, Russia's oil minister, said Russia has promising oil finds in Eastern Siberia, Arctic North and Sakhalin Island, but that Russia would not duplicate the superior +10% oil production growth the nation has achieved earlier this decade.
Just call Apache a buying opportunity extraordinaire. Oil/gas exploration and development company Apache (NYSE: APA) has dipped about $10 from 52-week highs around $107.50 to about $97, due to oil's recent pull-back.
As a result, APA's p/e is down to about 15. A p/e of 15 may not seem that cheap, but given Apache's upside potential -- it is. Look for Apache to continue to achieve solid growth through internal investment and acquisitions. Apache has several key exploration discoveries set to enter development stage and will drill nine wells in Canada this winter as part of its oil shale operations.
Overall, analysts see Apache's oil and gas volumes increasing about 10%-12% in 2007 and 2008. Even better: the company believes it can generate double-digit production growth for the next decade. The Reuters F2007/F2008 EPS consensus estimates for APA are $7.54/$8.84.
In the 1989 motion picture "Dead Poets Society," actor Robin Williams, playing school teacher John Keating, inspires his new students to take advantage of opportunities presented in life, to "seize the day." Well, if Robin Williams will allow, now is the time to "seize the day with Schlumberger." (Pronounced: shlum-bur-ZJAY.)
Oilfield services company Schlumberger Ltd. (NYSE: SLB) is likely to benefit from growing demand for oilfield services technology, particularly in the high technology-dependent Middle East, Africa, and Eastern Europe regions.
Further, although North American margins have narrowed somewhat so far in 2007, international margins widened. Overall, in 2008 analysts see SLB's margins totaling 30% -- still a very healthy figure -- with revenue growth of 12-14%.
Having just shed its land-based oil exploration division, Pride International Inc. (NYSE: PDE) is now focusing only on offshore drilling for oil. According to a recent report from Goldman Sachs, this move puts PDE's stock price in a position to grow significantly even while the report claimed the outlook is down for offshore drilling as a whole.
According to the Goldman report, PDE's assets have been undervalued by the market, and there's a potential for backlogs to grow and increase profitability. This report expects profits, which have been growing steadily along with revenues, to grow even more over the next year as costs come down.
It's not just the Goldman analysts who have been paying attention to this stock. PDE has recently undertaken contracts to build two new drill ships, which will give the company much more range to seek out profitable drilling areas, and the company is widely seen as a potential acquisition target. Meanwhile, getting out of Latin America frees the company from dealing with leaders like Hugo Chavez or Evo Morales.
There was a big acquisition announced today [subscription required] in the world of oil and gas, as Marathon Oil Corp (NYSE: MRO) is picking up Canada's Western Oil Sands Inc. for $5.56 billion, plus assumed debt of $650 million.
The deal is going to give Marathon Oil a huge presence in one of the world's largest crude oil reservoirs, the Athabasca Oil Sands Project. The deal, which is scheduled to finalize during the fourth quarter of this year, is going to give Marathon control over 300,000 gross acres of oil sands.
There are lots of hopes riding on the future of oil coming out of the Canadian oil sands. While the cost of getting that oil out of the ground is much higher than the cost of normal oil exploration, there are several reasons why it is being viewed as very profitable. The primary reason is the close proximity that the area has to America, which is, after all, the world's largest consumer. Being the closest supplier to the world's largest consumer of oil puts companies in Canada in a very enviable position.
Exxon Mobil Corp. (NYSE: XOM), whose huge profits have made it one of the most vilified companies in America, was brought down to earth today after posting disappointing earnings.
While many older oil fields are producing less than they used to, new discoveries of crude may make up for that. The Wall Street Journal 
India announced Tuesday that it wants oil sector giants 
The world's largest oil company, 
In the 1989 motion picture 
Having just shed its land-based oil exploration division, 
There was a 
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